Australian Securities Exchange - AbsoluteAstronomy.com

The Australian Securities Exchange (ASX) was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange

Stock exchange

A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...

group in Australia.

On 1 August 2010, ASX launched a new brand and group structure. ASX Group became the overarching name, replacing Australian Securities Exchange, which remains as the name of the listings and trading arm of the ASX Group.

ASX functions as a market operator, clearing house and payments system facilitator. It oversees compliance with its operating rules, promotes standards of corporate governance among Australia’s listed companies. It has a role in the education of retail investors, providing educational materials relating to its products including free online courses.

ASX offers products and services including shares; futures, exchange traded options, warrants, contracts for difference, exchange traded funds, real estate investment trusts, listed investment companies and interest rate securities.

The biggest stocks traded on the ASX, in terms of their market capitalisation, include BHP Billiton

BHP Billiton

BHP Billiton is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London, United Kingdom...

, Commonwealth Bank of Australia

Commonwealth Bank of Australia

The Commonwealth Bank of Australia is a multinational bank with businesses across New Zealand, Fiji, Asia, USA and the United Kingdom. Commonwealth Bank provides a variety of financial services including retail, business and institutional banking, funds management, superannuation, insurance,...

, Westpac, Telstra Corporation, Rio Tinto

Rio Tinto Group

The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with headquarters in London and Melbourne. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto river, in Huelva, Spain from the...

, National Australia Bank

National Australia Bank

National Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...

and Australia and New Zealand Banking Group. As at March 2010 the three largest sectors by market capitalisation were financial (36%), metal and mining (22%) and consumer (13%).

The major market index is the S&P/ASX 200

S&P/ASX 200

The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's...

, an index made up of the top 200 shares in the ASX. This supplanted the previously significant All Ordinaries

All Ordinaries

Established in January 1980, the All Ordinaries is the oldest index of shares in Australia, so called because it contains nearly all ordinary shares listed on the Australian Securities Exchange...

index, which still runs parallel to the S&P ASX 200. Both are commonly quoted together. Other indices for the bigger stocks are the S&P/ASX 100 and S&P/ASX 50

S&P/ASX 50

The S&P/ASX 50 Index is a stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's.It is a part of the S&P Global 1200.-Constituent companies:...

.

The current Managing Director and CEO, Mr Elmer Funke Kupper, was appointed in October 2011. Prior to joining ASX he was Managing Director and CEO of Tabcorp from September 2007 to June 2011.

Market details

ASX Group can be described as a multi-asset class and vertically integrated exchange group. Its activities include primary and secondary market services, including the raising, allocation and hedging of capital flows, trading and price discovery (Australian Securities Exchange); central counterparty risk transfer (via subsidiaries of ASX Clearing Corporation); and securities settlement for both the equities and fixed income markets (via subsidiaries of ASX Settlement Corporation).

ASX operates two trading, clearing and settlement platforms, one for equity and related equity derivative products traded on an integrated trading platform between the hours of 10:00am and 4:00pm (AEST); and one for a suite of interest rate, equity index and commodity futures (and options on futures) products as well as Contracts For Difference (CFD), traded on a globally distributed 24 hour platform.

Monitoring and enforcement of compliance with its operating rules is performed by its wholly owned subsidiary, ASX Compliance.

Operations of the ASX Group are regulated by the Australian Securities and Investments Commission

Australian Securities and Investments Commission

The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...

(ASIC) which regulates all trading venues and clearing and settlement facilities, and supervises ASX’s own compliance as a listed public company. The Reserve Bank of Australia

Reserve Bank of Australia

The Reserve Bank of Australia came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank to it....

(RBA) also provides oversight in relation to compliance with financial stability standards for ASX’s central counterparties and securities settlement facilities.

ASX has a pre-market session from 07:00am to 10:00am AEST

Time in Australia

Australia uses Standard time, i.e: the same well defined time for a region. The proper names of Australia's time zones are Australian Western Standard Time , Australian Central Standard Time , and Australian Eastern Standard Time...

and a normal trading session from 10:00am to 04:00pm AEST

Time in Australia

. The market opens alphabetically in single-price auction

Single-price auction

Single-price auctions are a pricing method in securities auctions that give all participants to the issue the same purchase price.-U.S. Treasury Auctions:United States Treasury security auctions are conducted using the single-price auction method...

s, phased over the first ten minutes, with a small random time built in to prevent exact prediction of the first trades. There is also a single-price auction between 4:10pm and 4:12pm to set the daily closing prices. As of 30 October 2010, 2,192 stocks were listed on the ASX with a total market capitalisation of A$1.4 trillion (US$1.4 trillion). As of 30 October 2010 it was the 6th largest world equity market (on free float basis), comprising around 3.4% of the S&P BMI and 3.2% of the MSCI World

MSCI World

The MSCI World is a stock market index of over 1,600 'world' stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International, and is often used as a common benchmark for 'world' or 'global' stock funds....

index. Average daily turnover during 2010 was $5.5Abn.

History

The exchange began as six separate exchanges established in the state capitals Melbourne

Melbourne

Melbourne is the capital and most populous city in the state of Victoria, and the second most populous city in Australia. The Melbourne City Centre is the hub of the greater metropolitan area and the Census statistical division—of which "Melbourne" is the common name. As of June 2009, the greater...

(1861), Sydney (1871), Hobart

Hobart

Hobart is the state capital and most populous city of the Australian island state of Tasmania. Founded in 1804 as a penal colony,Hobart is Australia's second oldest capital city after Sydney. In 2009, the city had a greater area population of approximately 212,019. A resident of Hobart is known as...

(1882), Brisbane

Brisbane

Brisbane is the capital and most populous city in the Australian state of Queensland and the third most populous city in Australia. Brisbane's metropolitan area has a population of over 2 million, and the South East Queensland urban conurbation, centred around Brisbane, encompasses a population of...

(1884), Adelaide

Adelaide

Adelaide is the capital city of South Australia and the fifth-largest city in Australia. Adelaide has an estimated population of more than 1.2 million...

(1887) and Perth

Perth, Western Australia

Perth is the capital and largest city of the Australian state of Western Australia and the fourth most populous city in Australia. The Perth metropolitan area has an estimated population of almost 1,700,000....

(1889). A further exchange in Launceston

Launceston, Tasmania

Launceston is a city in the north of the state of Tasmania, Australia at the junction of the North Esk and South Esk rivers where they become the Tamar River. Launceston is the second largest city in Tasmania after the state capital Hobart...

merged into the Hobart exchange.

The first interstate conference was held in 1903 at Melbourne Cup

Melbourne Cup

The Melbourne Cup is Australia's major Thoroughbred horse race. Marketed as "the race that stops a nation", it is a 3,200 metre race for three-year-olds and over. It is the richest "two-mile" handicap in the world, and one of the richest turf races...

time. The exchanges then met on an informal basis until 1937 when the Australian Associated Stock Exchanges (AASE) was established, with representatives from each exchange. Over time the AASE established uniform listing rules, broker rules, and commission rates.

Trading was conducted by a call system, where an exchange employee called the names of each company and brokers bid or offered on each. In the 1960s this changed to a post system. Exchange employees called "chalkies" wrote bids and offers in chalk on blackboard

Blackboard

A chalkboard is a reusable writing surface.Blackboard may also refer to:* Blackboards are synonymous with "boards of infamy", an element of agitation-propaganda in the Soviet Union in 1930s, coincidental with Holodomor...

s continuously, and recorded transactions made.

The ASX (Australian Stock Exchange Limited) was formed in 1987 by legislation of the Australian Parliament which enabled the amalgamation of six independent stock exchanges that formerly operated in the state capital cities. After demutualisation the ASX was the first exchange in the world to have its shares quoted on its own market. The ASX was listed on 14 October 1998. On 7 July 2006 the Australian Stock Exchange merged with SFE Corporation, holding company for the Sydney Futures Exchange.

Timeline of significant events

1969–1970: The Poseidon bubble

Poseidon bubble

The Poseidon bubble was a stock market bubble in which the price of Australian mining shares soared in late 1969, then crashed in early 1970. It was triggered by the Poseidon NL company's discovery of a promising site for nickel mining in September 1969....

(a mining boom triggered by a nickel discovery in Western Australia) caused Australian mining shares to soar and then crash, prompting regulatory recommendations that ultimately led to Australia's national companies and securities legislation.

1976: The Australian Options Market was established, trading call option

Call option

A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument from the seller...

s.

1980: The separate Melbourne and Sydney stock exchange indices were replaced by Australian Stock Exchange indices.

1984: Brokers' commission rates were deregulated. Commissions have gradually fallen ever since, with rates today as low as 0.12% or 0.05% from discount internet-based brokers.

1987: Following work begun in 1985, the separate exchanges merged to form the ASX. Also in 1987, the all-electronic SEATS trading system (below) was introduced. It started on just a limited range of stocks; progressively all stocks were moved to it and the trading floors were closed in 1990.

1990: A warrants

Warrant (finance)

In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date....

market was established.

1993: Fixed-interest securities were added (see Interest rate market below). Also in 1993, the FAST system of accelerated settlement was established, and the following year the CHESS system (see Settlement below) was introduced, superseding FAST.

1994: The Sydney Futures Exchange announced trading in futures

Futures contract

In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...

over individual ASX stocks. The ASX responded with the Low Exercise Price Option

Low Exercise Price Option

In 1995 the Australian Stock Exchange started listing of new exchange traded option product called a Low Exercise Price Option . A LEPO is a European style call option with a low exercise price of $0.01 and a contract size of 1000 shares to be delivered on exercise.LEPOs are traded on margin...

or LEPO (see below). The SFE went to court, claiming that LEPOs were futures and therefore that the ASX could not offer them. However, the court held they were options and so LEPOs were introduced in 1995.

1995: Stamp duty

Stamp duty

Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...

on share transactions was halved from 0.3% to 0.15%. The ASX had agreed with the Queensland State Government

Government of Queensland

The Government of Queensland is commonly known as the "Queensland Government".The form of the Government of Queensland is prescribed in its Constitution, which dates from 1859, although it has been amended many times since then...

to locate staff in Brisbane

Brisbane

in exchange for the stamp duty reduction there, and the other states followed suit so as not to lose brokerage business to Queensland. In 2000 stamp duty was abolished in all states as part of the introduction of the GST

Goods and Services Tax (Australia)

The GST is a broad sales tax of 10% on most goods and services transactions in Australia. It is a value added tax, not a sales tax, in that it is refunded to all parties in the chain of production other than the final consumer....

.

1996: The exchange members (brokers etc.) voted to demutualise. The exchange was incorporated as ASX Limited and in 1998 the company was listed on the ASX itself, with the Australian Securities and Investments Commission

Australian Securities and Investments Commission

The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...

enforcing the listing rules for ASX Limited.

1997: A phased transition to the electronic CLICK system for derivatives began.

2001: Stamp duty

Stamp duty

on marketable securities was abolished.
2006: The ASX announced a merger with the Sydney Futures Exchange, the primary derivatives exchange in Australia.

2010: The ASX announced a merger with Singapore Exchange

Singapore Exchange

Singapore Exchange Limited is an investment holding company located in Singapore and providing different services related to securities and derivatives trading and others. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges FederationSingapore Exchange...

.

2011: Treasurer Wayne Swan

Wayne Swan

Wayne Maxwell Swan is the Deputy Prime Minister of Australia and an Australian politician. He has been an Australian Labor Party member of the Australian House of Representatives from 1993 to 1996, and then re elected in 1998 till today , representing the Division of Lilley, QLD...

finds the proposed merger with the Singapore Stock Exchange to not be in the best interests of Australia and refuses to grant permission for the merger.

Trading systems

As at 29 November 2010, all ASX Equity products are screen traded on a platform called ASX Trade. ASX Trade is a NASDAQ OMX ultra-low latency trading platform based on NASDAQ OMX's Genium INET system. Many exchages around the world use a trading platform supplied by NASDAQ OMX.

Settlement

Investors hold shares in one of two forms. Both operate as uncertificated holdings (rather than through the issue of physical share certificates):

Issuer-sponsored. The company's share register administers the investor's holding and issues the investor with a security-holder reference number (SRN) which may be quoted when selling.

Clearing House Electronic Sub-register System
Australian Clearing House and Electronic Sub-register System
The Australian Clearing House Electronic Subregister System is an electronic book-entry register of holdings of approved securities that facilitates the transfer and settlement of market transactions between the Australian Securities Exchange and the ASX Settlement and Transfer Corporation Pty...

(CHESS). The investor's controlling participant (normally a broker) sponsors the client into CHESS. The investor is given a holder identification number (HIN) and monthly statements are sent to the investor from the CHESS system when there is a movement in their holding that month.

Holdings may be moved from issuer-sponsored to CHESS or between different brokers by electronic message initiated by the controlling participant.

Short selling

Short selling of shares is permitted on the ASX, but only among designated stocks and with certain conditions:

ASX Trading Participants (brokers) must report all daily gross short sales to ASX. The report will aggregate the gross short sales as reported by each Trading participant at an individual stock level.
ASX publishes aggregate gross short sales to ASX participants and the general public.

Many brokers do not offer short selling to small private investors. LEPOs (below) can serve as an equivalent, while contracts for difference

Contract for difference

In finance, a contract for difference is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time...

(CFDs) offered by third-party providers are another alternative.

In September 2008, ASIC suspended nearly all forms of short selling due to concerns about market stability in the ongoing global financial crisis. The ban on covered short selling was lifted in May 2009.

Further to this - the biggest change in this space for ASX in the last 15 years was the introduction of Settlement Rule 10.11.12. If you cannot provide stocks when settlement is due, ASX forces your clearer to go into the market and cover themselves.

e.g.

ASTC Settlement Rule 10.11.12 requires that if a Failed Settlement Shortfall exists on the second Business Day after the day on which the Rescheduled Batch Instruction was originally scheduled for settlement (that is, generally on T+5), the delivering Settlement Participant must either:

close out the Failed Settlement Shortfall on the next Business Day by purchasing the number of Financial Products of the relevant class equal to the Failed Settlement Shortfall; or
acquire under a securities lending arrangement the number of Financial Products of the relevant class equal to the Failed Settlement Shortfall and deliver those Financial Products in Batch Settlement no more than two Business Days later.

Options

Option (finance)

In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...

on leading shares are traded on the ASX, with standardised sets of strike prices and expiry dates. Liquidity is provided by market makers who are required to provide quotes. Each market maker is assigned two or more stocks. A stock can have more than one market maker, and they compete with one another. A market maker may choose one or both of:

Make a market continuously, on a set of 18 options.
Make a market in response to a quote request, in any option up to 9 months out.

In both cases there is a minimum quantity (5 or 10 contracts depending on the shares) and a maximum spread permitted.

Due to the higher risks in options, brokers must check clients' suitability before allowing them to trade options. Clients may both take (i.e. buy) and write (i.e. sell) options. For written positions, the client must put up margin

Margin (finance)

In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...

Interest rate market

The ASX interest rate market is the set of corporate bond

Corporate bond

A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date...

s, floating rate note

Floating rate note

Floating rate notes are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a spread. The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months, though counter...

s, and bond-like preference shares listed on the exchange. These securities are traded and settled in the same way as ordinary shares, but the ASX provides information such as their maturity, effective interest rate, etc., to aid comparison.

Futures

The Sydney Futures Exchange (SFE) – now a part of the ASX – was the 10th largest derivatives

Derivative (finance)

A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

exchange in the world, providing derivatives in interest rates, equities, currencies and commodities. It provided futures

Futures contract

and options on the four most actively traded markets - interest rates, equities, currencies and commodities including wool and cattle. Its most active products are:

SPI 200 Futures – Futures contracts on an index representing the largest 200 stocks on the Australian Stock Exchange by market capitalisation.
AU 90-day Bank Accepted Bill Futures – Australia's equivalent of T-Bill futures.
3-Year Bond Futures – Futures contracts on Australian 3-year bonds
10-Year Bond Futures – Futures contracts on Australian 10-year bonds.

The ASX trades futures over the ASX 50, ASX 200 and ASX property indexes, and over grain, electricity

Electricity

Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...

and wool

Wool

Wool is the textile fiber obtained from sheep and certain other animals, including cashmere from goats, mohair from goats, qiviut from muskoxen, vicuña, alpaca, camel from animals in the camel family, and angora from rabbits....

. Options over grain futures are also traded.

Market indices

The ASX maintains stock indexes concerning stocks traded on the exchange in conjunction with Standard & Poor's

Standard & Poor's

Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...

. There is a hierarchy of index groups called the S&P/ASX 20, S&P/ASX 50

S&P/ASX 50

The S&P/ASX 50 Index is a stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's.It is a part of the S&P Global 1200.-Constituent companies:...

, S&P/ASX 100, S&P/ASX 200

S&P/ASX 200

The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's...

and S&P/ASX 300

S&P/ASX 300

The S&P/ASX 300 index is a market-capitalisation weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's....

, notionally containing the 20, 50, 100, 200 and 300 largest companies listed on the exchange, subject to some qualifications.

ASX Sharemarket Game

Gain market experience with a 'virtual' share portfolio using real market prices. ASX runs Schools and Public Games. Hypothetically invest $50,000 in the stock exchange. Players buy and sell shares at current market prices and track the progress of their investments over the duration of the game.

Market Supervision

On 1 August 2010 responsibility for the supervision of real-time trading on Australia’s domestic licensed financial markets and the supervision of the conduct by participants (including the relationship between participants and their clients) on those markets transferred to ASIC.

ASX retained responsibility for ensuring participants admitted to its market comply with its operating rules. The new arrangements did not change ASX’s existing oversight of listed entities or the obligations on ASX’s clearing and settlement facility operators.

ASX retained a subsidiary company to fulfil the obligations of each of the licensed entities in the ASX Group to monitor and enforce compliance with the ASX operating rules after the transfer. The name of the subsidiary was changed to ASX Compliance, as the previous name - ASX Markets Supervision - no longer properly described the subsidiary’s role within the ASX Group or ASX’s ongoing obligations.

Merger Talks With SGX

ASX was (25 October 2010) in merger talks with Singapore Exchange